Renewable energies will create opportunities for risk transfer

28th October 2010 - Author: Artemis

The growth of renewable energies and their increasing usage in power generation is going to create opportunities for the insurance and reinsurance industry. Munich Re said in a press release the other day that they expect ‘renewable energies to generate strong growth in premium volume’. The Munich Re press release is discussing Germany in particular but the same scenario can be expected in other countries around the world as governments attempt to push as much power generation down the renewables route as they can. Munich re suggest that in Germany the share of renewables in power generation will rise from its current 10% to 60% by 2050. That’s a lot of growth, and if you think of the insurance and reinsurance currently in force for traditional methods of power generation it will need a lot of premium to cover the renewable alternative.

Two of the main sources of renewable energy are solar photovoltaic, wind power and less popular you have wave power. All of these are weather dependent or can be weather affected in some way meaning that opportunities exist for savvy re/insurers to create products to protect operators from the risks of weather impacting their renewable energy facilities.

There are many possible applications of insurance risk transfer and weather risk management to these new and growing industries. The facilities need protecting from the weather (eg. wave power facilities could be damaged by large storms) and the operators will want to hedge the risks of not being able to produce as much energy as they want/need (eg. not enough sun for photovoltaic or not enough wind for wind farms to be efficient). It’s not just re/insurers who have an opportunity with this industry, risk modelling firms are well placed to provide models to predict output of these facilities and to create disaster models for them.

Munich Re say they are preparing to expand a customised range of risk transfer products for the renewable energy industry. We think other re/insurers would be wise to do their homework and be ready to create products of their own before this industry really takes off.